Why we all need a Budget for jobs

David "Danny" Blanchflower, one of nine economic gurus who help to set the interest rates for the Bank of England, saw this recession coming.

David "Danny" Blanchflower, one of nine economic gurus who help to set the interest rates for the Bank of England, saw this recession coming.

The Mirror backed his pleas for interest rate cuts as long ago as last January - but his colleagues ignored them.

Now, in an exclusive interview with our Business Editor Clinton Manning, he urges the Chancellor to tackle the threat of spiralling unemployment, which he warns could scar a generation.

I argued during 2008 that a big recession was coming.

But I was unable to convince my colleagues on the Monetary Policy Committee to reduce interest rates quickly enough.

Now the recession is hitting us full force and while interest rates have been cut, this should have happened sooner.

For many people, falling interest rates have meant a big cut in their mortgage payments. But it has also resulted in savers, many of whom are pensioners - like my mum and dad - having less money to live on.

However, they understand that lower interest rates do help young families struggling to make ends meet. The financial crisis that started in the sub-prime market in the US has now spread to your local high street. Banks have been rescued and other firms are struggling to survive.

We have a jobs crisis and the government needs to act quickly.

Unemployment is going to rise a lot during 2009. It's very likely to hit three million by the end of the year and there is a good chance it could go much higher still.

Unemployment will rise in every region and every constituency. It is probably going to be the biggest issue in the next election. But the Chancellor can help in next week's Budget, which I suggest should be a "Budget for Jobs". Rising unemployment among the young is really worrying. Out of the two million jobless today, around 800,000 are aged under 25.

That number will rise fast as the class of 2009 leave schools, colleges and universities in June and July to find there are no jobs.

Why do we care about unemployment? First, because the goods and services that the unemployed people would have been making are lost. Unemployment can also result in physical and mental illness, stress, depression and a reduction in life expectancy. And as unemployment rates increase, crime rates tend to rise, especially property crime. Research shows that those who become unemployed are less happy but there is also evidence that it makes the rest of us unhappy, too.

We don't like seeing our friends, neighbours or even our children struggling because they can't find work. People are also fearful that they will be next in line to lose their jobs - we need to lessen that fear.

Perhaps most importantly, unemployment while young, especially of long duration, causes permanent scars. For the young the impact of a period of unemployment doesn't necessarily end when a person finally finds a job - it raises the chances of being unemployed later in life and lowers lifetime earnings. That is not to lessen the impact of unemployment on older workers, but the effects on the young are much longer and deeper. So the young are a priority.

For some reason the government has put restrictions on the number of sixth-form students and the number of places in colleges and universities. This is a really bad idea. At a time when youth unemployment is rising, education is a fantastic alternative.

One good idea worth considering is to immediately increase the number of places for the over-18s in further and higher education.

Applications are up and universities and colleges have the capacity to increase their intakes by up to a quarter - as long as they receive immediate funding. The Chancellor should provide the necessary funds in the Budget. He should also ensure that funds are available to allow the poorest people to attend. Education should be for everyone, not just the rich. A strong case can also be made for raising the compulsory schoolleaving age to 18 right now.

Levels of numeracy and literacy are low in the UK by international standards and should be raised as a priority. We have the capacity and there is an over-supply of people wanting to train as teachers. There is evidence that extra schooling improves wealth, health and happiness.

It is better for all of us to have youngsters in school rather than on the street. There is a growing consensus that the Chancellor needs to provide money in the Budget to create jobs. The cost of not doing this is too high. It is a waste to pay for three million people to be on the dole and creating jobs now will be an investment in all our futures.

The Prime Minister has said there will be measures in the Budget to create "green jobs". That's excellent, as green jobs are usually good jobs with decent pay. The Chancellor should give employers incentives to hire people. He should also provide temporary help to prevent workers being fired. It's also a good idea to fund "shovel-ready" projects which can start quickly, especially if they're job-intensive.

Unemployment hurts. We need to stop the pain and get people back to work. We need a Budget for Jobs.